POT Annual Meeting: Chair & CE’s Address

PORT OF TAURANGA ANNUAL MEETING 2019
1pm, Friday 25 October 2019


Chair – David Pilkington

I am pleased to present a summary of our performance for the year to June 2019. Port of
Tauranga is, by an increasing margin, New Zealand’s largest, fastest growing and most
productive port.

Our annual cargo volumes increased 10.2% to 26.9 million tonnes.

Containerised cargo grew 4.3% to more than 1.2 million TEUs. Transhipments, where
containerised cargo is transferred from one service to another, continued to show large
increases, further evidence of our success in becoming New Zealand’s major international
hub port.

In the year to 30 June, container transhipment grew 11.2%. Transhipment now makes up
32.1% of the containers handled at Port of Tauranga.

Port of Tauranga handles 37% of all containers in New Zealand and 30% of total New Zealand
cargo.

Group Net Profit After Tax passed the $100 million milestone for the first time, increasing 6.7%
on last year’s profit to reach $100.6 million.

Revenue increased 10.4% to $313.3 million. Parent EBITDA increased 12.4% to $168.6
million.

And as you’ll be aware, ordinary dividends for the year totalled 13.3 cents per share, a 4.7%
increase on the previous year. Total dividends increased 6.5% with the last of four special
dividend payments of 5.0 cents per share. We have resolved to continue paying a special
dividend, of 2.5 cents per share per annum, subject to any change in our capital expenditure
plans.

We have capital spending of $310 million in the pipeline, in five stages aligned with ongoing
future cargo growth.

For the Port of Tauranga Group as a whole, results were mixed across our Associate and
Subsidiary Companies. Overall, profits decreased 27.5% after a very disappointing result from
Coda Group, our 50/50 joint venture with Kotahi.

Coda Group’s new Chief Executive, Gerard Morrison, has embarked on an extensive change
programme to ensure its long-term success.

We completed a new warehouse for Coda Group at our MetroPort Christchurch inland freight
hub at Rolleston, which Coda is using to handle Westland Milk’s exports.

Our 100% subsidiary Quality Marshalling had an outstanding year, with profits increasing
15.1%.

Our South Island joint venture PrimePort Timaru had a good year too, increasing its
contribution by 36.6%.

Timaru Container Terminal volumes decreased slightly, by about 10%. However, some of
PrimePort’s recent investments in building capacity have had immediate results for the
terminal. Channel widening and a new tug have allowed the terminal to accommodate
Maersk’s Rio class vessels, currently the largest container vessels visiting the South Island.
Maersk has also inceased its OC1/USA service from fortnightly to weekly and Swires have
recently announced an additional Timaru weekly service linking through to Tauranga.

Northport cargo volumes remained steady compared with the previous financial year. We
welcome the news that KiwiRail will invest in refurbishing the Auckland-Northland rail line so
that there will hopefully be capacity in future to handle increased cargo volumes.

As you will no doubt be aware, a Government-appointed working group is looking at proposals
to move Ports of Auckland volumes to Northport.

We welcome the final working group report and believe that both Northport and Port of
Tauranga have a key role to play in alleviating the congestion pressure on Ports of Auckland.

The working group’s latest report suggests the majority of Auckland’s cargo be handled
through Northport. To operate efficiently, this will require significant investment in road and
rail connections to Northland.

At the end of the day, freight owners will continue to choose the most reliable and cost effective
supply chain. The working group’s challenge now is to come up with an acceptable action plan
proposal to achieve this, given the huge investment required.

We have not yet had the opportunity to sit down and go through the detailed figures with the
producers of the Ernst Young analysis. Some of the data the group has reported – around
costs, future capacity and cargo forecasts – does not align with our own data. As mentioned
at last year’s annual meeting, we engaged Netherlands-based container terminal experts TBA
Group to complete a capacity development review of our facilities. It showed we can
accommodate up to around 2.8 million TEUs per annum on our current footprint, albeit with
some further capital investment.

We have identified that berth capacity is the biggest current constraint to further growth, so
we are planning to extend the container wharves to the south of the existing berths. This will
create a fourth berth.

We will be taking delivery of our ninth container crane in January, heralding the start of the
new programme of expansion.

All of our planned investments pass the test of our usual rigorous cost benefit analysis. We
seek a return of at least 7.5% after tax on capital investments. Unfortunately, the same rigour
can not be attributed to some of the spending decisions of our competitors.

A number of companies, and their owners, seem to ignore the Port Companies Act
requirement to act as a successful commercial business.

Many ports continue to make uneconomic investment decisions. The Office of the Auditor-
General has found considerable variation in port companies’ approach to valuations and we
support the Auditor-General in any moves that result in greater transparency in financial
reporting across the sector.

We take climate change very seriously as a business and our Chief Executive will give you a
progress update on the initiatives we have underway.

As well as reducing our carbon emissions, our environmental focus has been on air and
stormwater quality. We have invested heavily in the past few years in improving both.

Following the changes to NZX guidelines, we have decided to discontinue our interim financial
reports in their current format. We will, however, be giving you all a thorough half-year update,
which will be distributed via email and available online.

Before I hand over to Mark, I must highlight his win of a very prestigious award during the
year. Mark received the Caldwell Partners Leadership Award at the 2019 Institute of Finance
Professionals Awards. These awards recognise innovation and excellence in the financial and
capital markets sector.

The judges rightly pointed out Port of Tauranga’s excellent productivity rates, industry-leading
safety record, increasing cargo volumes and shareholder returns that have compounded by
an average 20.4% since Mark took the Company helm in 2005.

Another instrumental figure in that success has been Steve Gray, our Chief Financial Officer.
Sadly, Steve has announced his retirement from June next year.

Steve has served as CFO for the past 12 years and been with the Company for 32 years.

Steve led the team that negotiated our long-term freight agreement with Kotahi that enabled
Port of Tauranga to become big ship capable.

We will be very sad to see him go but we are hopeful we will retain his services through his
governance roles with our Associate Companies.

It is inevitable that Mark too will eventually wish to retire, although we hope to put this off as
long as possible. In preparation, the Board, together with Mark, has put a strong emphasis on
succession planning and building our bench strength, and we have moved our Commercial
Manager Leonard Sampson into the new role of Chief Operating Officer.

This will give Leonard exposure to all parts of the business, while he supports Mark in his role.

We have commenced the search for a replacement for Leonard as Commercial Manager, and
Steve as CFO, and we will make appointment announcements in due course.

We are also very pleased to have Simon Kebbell join the Senior Management Team, adding
Company Secretary responsibilities to his IT / Finance Manager role.

Finally I would like to express my appreciation to my fellow directors, Mark and the Senior
Management Team, our staff and many contractors for the commitment and dedication to your
great company.

I’ll ask Mark to now share some of the operational highlights for the year as well as the outlook
for the 2020 financial year and beyond.

---

PORT OF TAURANGA ANNUAL MEETING 2019
1pm, Friday 25 October 2019

Chief Executive – Mark Cairns

Thank you David. Kia ora tatou. Good afternoon Ladies and Gentlemen, thank you for your
attendance this afternoon. I am Mark Cairns, honoured to serve as your Chief Executive of
Port of Tauranga - New Zealand’s largest, fastest growing, and most productive port.

As David outlined, we had another successful year with exports increasing 11.2% to 17.1
million tonnes and imports increasing 8.4% to 9.8 million tonnes for the year ended June.

Log exports increased 12.5% to 7.1 million tonnes. This trend is not expected to continue in
the short term and I will elaborate further on this shortly.

Sawn timber exports increased 5.4% in volume. Overall, forestry-related exports increased
10% in volume.

Dairy product exports remained steady at just over 2.3 million tonnes. Imports of stock feed
supplements decreased 11.8% in volume, and fertiliser imports decreased 9.2%.

Kiwifruit exports increased 15.2% during the period, a trend that is expected to continue for
the next few years.

Other primary produce sectors also performed strongly, with frozen meat exports increasing
18.8% in volume and apple exports increasing 54.3%.

In the construction sector, cement exports decreased 17.1% and steel exports decreased
7.7%. Salt imports increased 26.8% in volume.

Oil product imports increased by just under 2% and dry chemical imports increased by almost
9%.

We also had a bumper cruise ship season, with 116 passenger vessels, up from 83 in the
previous year. Around 227,000 passengers and 89,000 crew visited the port and expenditure
into the regional economy was estimated at $90.3 million. We have 112 cruise ships booked
to visit this coming season.

A key component of our hub port strategy is the long-term freight agreements negotiated with
our key customers, to ensure we have the freight volume to justify the big ship services calling
in Tauranga. Our relationships with cargo owners such as Oji Fibre Solutions, Kotahi Logistics
and Zespri give us that assurance. I am pleased to report that we successfully renegotiated
our second decade long partnership agreement with Oji in December.

We also work both formally and informally with the three iwi with mana whenua status in
Tauranga Moana. Through the two different schemes we administer, we awarded
scholarships to 18 tertiary students with ties to the Bay of Plenty in the last year.

We will continue to invest in the projects, organisations and events with long-term benefits for
our community – such as the Pilot Bay boardwalk, the upkeep of the walking tracks on Mauao
and the floodlighting at Bay Oval.

I’m very pleased to report that we were able to contribute dividends of $66.3 million to our
main shareholder, Quayside Holdings, which is Bay of Plenty Regional Council’s investment
arm. Since the company listed in 1992, Quayside has received a total of more than $800
million in dividends from its shareholding.

This is on top of the $200 million Regional Infrastructure Fund that the Regional Council has
established via its shareholding, to help fund major capital investments throughout the wider
region, including the marine precinct and tertiary education campus here in Tauranga.

We continue to make progress towards our health and safety goals. Last year we achieved a
55% reduction in Total Recordable Injury Frequency Rate, and a 17% reduction in Injury
Severity. We had one lost-time injury during the year, involving blistered feet, and we consider
that is still one too many.

We’ve had a a very positive response to the introduction of our ShipShape staff wellbeing
programme a year ago and it has proven to be a great platform for promoting teamwork
amongst staff.

We are developing a comprehensive training and development framework to ensure that all
of our employees have a personalised plan to improve and expand their skills. Most of our
people managers have recently had training on mental health issues, domestic violence,
discrimination, bullying, harrassment and inclusivity.

I am immensely proud of our Port People, who provide the Company with our greatest source
of competitive advantage. Our people work around the clock, in all weathers, and thrive on
the challenges presented to them. They embrace our culture of continually striving to do things
better and demonstrating an enduring “can-do” attitude, contributing to our reputation as an
innovative organisation that puts customer needs at the heart of everything we do.

The Ministry of Transport monitors the productivity of New Zealand’s six container ports. In
2018, we handled 44.3% more containers than the next largest port.

Our productivity rates took a bit of a hit during the peak season as we had to accommodate
unscheduled ship visits due to diversions from Ports of Auckland.

However, our rates remain market-leading in Australasia. Our average crane rate over the
year was 33.6 moves per hour. We remained the most efficient port measured by ship rate,
with an average of 84.3 moves per hour in 2018 , 17% ahead of the national average of 72.3
moves per hour. We were 54% more productive than the average of the top five Australian
container ports, whose average ship rate was 54.9 moves per hour.

We occupy a very special piece of real estate and it is important to us that we are never seen
to take our licence to operate for granted. I would like to pause here and show you a short
video that embodies our desire to effect a step change in our environmental, social, and
corporate governance performance.


Measuring, understanding and reducing our carbon emissions has been a big focus in the
past couple of years. We have gained certification of our carbon emissions through the
Certified Measurement and Reduction Scheme, or CEMARS.

We have set an initial short-term goal of a 5% reduction in Scope 1 carbon emissions per
cargo tonne. Scope 1 emissions are those most directly caused and influenced by our
business activities, and primarily come from burning diesel in our straddle carriers, and to a
lesser extent, in our marine fleet and other vehicles.

We are targeting net-zero emissions by 2050 and we are working on multiple fronts to achieve
this.

One is the establishment of an “inset” fund, where we invest the money we would spend on
external carbon offsets on sustainability initiatives within our business. This year, this fund sits
at just under $1 million, which we are using to subsidise the purchase of more expensive
battery-hybrid straddle carriers.

Our next stage of expansion will allow us to utilise fully-electric automated stacking cranes,
avoiding increased diesel consumption from the increase in cargo handled.

We are also replacing light vehicles with electric or hybrid models where we can, and using
biodiesel where we can’t.

It’s a bit of a balancing act. We have increased our wharf sweeping to prevent any dust or
debris being washed into the harbour when it rains heavily. But this has increased our carbon
emissions from waste going to landfill.

A large proportion of bark from the log wharves is already recycled into compost, and we are
looking at ways where we can recycle more waste.

We favour rail transport over road because of the lower emissions, and we are promoting
greater use of coastal shipping where feasible. Because we can use rail and coastal shipping
to consolidate cargo at Tauranga, and because of the efficiency of the larger vessels that tend
to call here, we can offer the lowest emission supply chain to our customers.

In terms of air and water quality, we are very pleased to have secured resource consent for
our stormwater network at Mount Maunganui. We have also made significant progress in dust
suppression, which I alluded to earlier, with increased sweeping and updated bulk cargo
handling rules.

We fully support moves to low sulphur fuel use by ships, which will go a long way to reducing
air pollution from shipping. We are working with a couple of suppliers to ensure the necessary
fuel bunkering facilities are available for visiting vessels.

We are also supporting moves to phase out or completely recapture methyl bromide for log
fumigation. We have introduced financial incentives for bark removal on export logs prior to
their arrival at the port. This minimises the amount of fumigation required and can even remove
the need altogether. One of our largest customers, Kaingaroa Timberlands, is reporting great
results from its new de-barking plant at its rail exchange at Murupara.

We are trying to achieve environmental leadership visibility across all of our staff and I was
delighted to receive this letter from Kaingaroa Timberlands welcoming our increased
environmental focus.

However, the fact remains that many of our export markets insist upon the use of methyl
bromide to address biosecurity risk. And even our own Ministry for Primary Industries requires
methyl bromide treatment of many imports to repel pests such as the brown marmorated stink
bug.

Keeping this pest out of New Zealand is a big focus of our biosecurity excellence partnership
with MPI, Kiwifruit Vine Health and other agencies, which aims to build awareness among the
wider port community.

Meanwhile, we have capital spending of $310 million in the pipeline, in five stages aligned with
cargo growth.
We have progressed our plans to extend the container wharves to the south using existing
port land. We hope to lodge a resource consent application in the next few months.

Our ninth container crane and associated straddle carriers are on their way, including three
new hybrid straddles that will give us fuel savings of 30 to 40% compared with the diesel-
electric models we run currently.

As David mentioned, we believe we can increase container throughput to 2.8 million TEUs in
future within our existing footprint. Most of this growth will be transported by rail, which
provides the lowest carbon supply chain and the least impact on the community.

Our new vehicle booking system is improving traffic flows into the terminal by incentivising
truck visits outside peak hours. This helps us speed up cargo delivery and pick up within the
port gates, as well as avoiding adding trucks to the peak hour traffic on roads surrounding the
port.

Over the past five years, the compound annual growth rate in truck volumes to and from the
port was 3.2%. We have renewed our call for state highway designation for Totara Street,
which would help support upgrades to this important arterial route. It is considered
unacceptable that we do not have a State Highway connection to the main gate on our Mount

Maunganui wharves. The Mount Maunganui wharves by themselves are the second largest
port in New Zealand, with Sulphur Point being the largest in terms of tonnes of cargo handled.

As mentioned by David, we will be farewelling our hugely valued CFO in eight months’ time
after an awe-inspiring 32 years with the Company. I am pleased to report that Steve won’t be
leaving us altogether, and will be a feature on the Boards of our Subsidiaries and Associates
and – I hope – continue lending me his ear from time to time.

I personally have relied heavily on Steve’s sound judgement and am grateful for his wisdom
as well as his good humour. In 2017, I was proud that his immense strategic skills, as well as
his financial qualities, were appropriately recognised in the Deloitte Top 200 Business Awards,
when he was name CFO of the Year – a most worthy recipient and a popular choice for the
market, which has long-respected his abilities.

Looking now to the future and our prospects over the coming year: we continue to focus on
maintaining diversity in our cargo and customer mix to give us some resilience amidst the
usual fluctuations in trade conditions and commodity cycles.

There are some large-scale developments happening in the Bay of Plenty and neighbouring
regions. The Ruakura hub development by Tainui Group Holdings in Hamilton will get under
way in the next few years, and we have formed a thirty year and potentially 50 year partnership
with Tainui to help that get moving. There are also some significant production facilities in the
pipeline in the eastern Bay of Plenty, as well as some potential new factories in the Tauranga
area. While the availability of greenfields sites in the Tauranga city limits is starting to get
squeezed, there is still plenty of land available at places such as Rangiuru, near Te Puke,
where Quayside intends to develop a business park.

Despite the potential developments locally, the global political and economic environment is
expected to provide some short term headwinds. Current global infuences include increased
trade protectionism, uncertainty with the ongoing Brexit process, and geopolitical tension
involving the Middle East, Russia and North Korea, not to mention the impact of the on-going
trade tensions between the United States and China.

There are signs that we will see a softening of growth in some cargo categories in the coming
year. Log prices dropped sharply a few months ago from their historic highs, and we have
seen volumes become a bit patchier in recent times. Overall, the guidance we are getting from

our larger customers is that log volumes are likely to drop back to about the same volumes
we saw in the 2018 financial year.

The first quarter saw cargo volumes slightly less than the prior corresponding quarter and
consequently at this stage, our guidance for full-year earnings is in the region of $96 to $101
million, the same guidance we gave at last year’s Annual Meeting for this year’s record result.

We are taking a hard look at all our costs to ensure we are in the best shape possible and our
recent credit upgrade to A- will help with our financing costs over the coming year. We believe
we are well placed to weather any coming economic storm, and will continue to invest.

It just remains for me to thank our customers and partners. We’ve had the opportunity to
celebrate a few milestones with them over the past 12 months and we look forward to
acknowledging many more into the future.

We remain confident in the long term outlook and will continue to strive for success as New
Zealand’s Port for the Future, delivering benefits to all our stakeholders, both here in the Bay
of Plenty and well beyond. Thirty-six % of New Zealand’s exports passing across our quays.
Tens of thousands of New Zealanders rely on us for direct and indirect employment, with Port
of Tauranga impacting 43% of the region’s GDP.

As I finish, I would like to leave you with a video showing the planned developments in our
container terminal over the next few years.

Nga mihi nui kia koutou katoa. Thank you for your attendance Ladies and Gentlemen.

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Port of Tauranga Limited
ANNUAL MEETING
25 October 2019

David Pilkington
CHAIR

Total trade up 10.2%
22,194
24,458
26,946
0
5,000
10,000
15,000
20,000
25,000
30,000
201720182019
Thousand
tonnes

Container volumes up 4.3%
1,085,987
1,182,147
1,233,177
100,000
300,000
500,000
700,000
900,000
1,100,000
1,300,000
201720182019
TEUs

Transhipped containers up 11.2%
TEUs
245,896
303,284
337,183
100,000
150,000
200,000
250,000
300,000
350,000
400,000
201720182019

Group Net Profit After Tax up 6.7%
$83,441
$94,273
$100,577
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
201720182019
$Thousands

Ordinary dividends up 4.7%
Continuance of 2.5cps special dividend for another 4 years
11.2
12.7
13.3
0
2
4
6
8
10
12
14
201720182019
Cents per share

Subsidiary and Associate Companies
Net Profit After Tax down 27.5%
Coda GroupQuality Marshalling
PrimePort Timaru

Title of role
Subsidiary and Associate Companies
Timaru Container
Terminal
Northport

Upper North Island
Supply Chain
Strategy
•Second report October 2019
•Favours Northport for bulk of
Auckland cargo
•Investment in rail and road
networks required
•Final report to Government by
end of year.

Our environment

Institute of Finance
Professionals NZ
Awards
•Chief Executive Mark Cairns
received prestigious Caldwell
Partners’ Leadership Award
for 2019

Port of Tauranga performance vs NZX50

CFO Steve Gray
•Retirement in June 2020 after
32 years with the Company
and 12 years as Chief
Financial Officer

Mark Cairns
CHIEF EXECUTIVE

Log exports up 12.5%
5,490
6,276
7,063
0
2,000
4,000
6,000
8,000
201720182019

Dairy exports steady
2,223
2,312
2,322
0
500
1,000
1,500
2,000
2,500
201720182019

Kiwifruit exports up 15.3%
25,048
31,949
36,804
0
10,000
20,000
30,000
40,000
201720182019

Our relationships
•Renewed decade-term freight
agreement with Oji Fibre
Solutions
•Award 18 tertiary education
scholarships
•Sponsorship of community
infrastructure projects
•$66.3 million in dividends to
Quayside Holdings
Murray Horne, General Manager
Oji Fibre Solutions

Our people
•55% reduction in Total Recordable
Injury Frequency Rate (TRIFR)
•One lost-time injury – blistered feet
•17% reduction in injury severity

Our people

Source. Ministry of Transport
NZ’s Largest Container Terminal
Handle 44% more containers than Auckland
(container volumes by quarter – all ports)
0
50,000
100,000
150,000
200,000
250,000
09Q109Q209Q315Q115Q215Q315Q416Q116Q216Q316Q417Q117Q217Q317Q418Q118Q218Q318Q419Q119Q2
AucklandLytteltonNapierOtagoTaurangaWellington

Our skills & knowledge
•Market-leading productivity
•Average crane rate of 33.6 moves per
hour – national average 31.7
•Ship rate of 84.3 moves per hour –
national average 72.3

Our environment
•Short-term target 5%
reduction of Scope 1
carbon emissions per
cargo tonne during FY21
•Targeting net zero
emissions by 2050

Our environment
•“Inset” fund established to subsidise
environmentally-friendly initiatives
•Battery-hybrid straddle carriers
•Each straddle $215,000 more expensive than
diesel-electric equivalent

Our environment
•Replacing light vehicles with
electric or hybrid models
•Using biodiesel wherever
possible

Our environment
•Secured resource consent
for Mount Maunganui
stormwater
•Dust suppression technology
•Supporting moves to low
sulphur fuel for ships –
bunkering facilities to be
installed

Our environment
•Methyl bromide recapture
targets being met or
exceeded
•Successful implementation
of Kaingaroa Timberlands
de-barker at Murupara

Our environment
•Increasing environmental leadership

Our assets & infrastructure
•Ninth container crane being delivered in
January 2020
•Seven straddle carriers ordered
(including three hybrid models)

Full Build Out ~2.8M TEUs

Our assets & infrastructure
•New vehicle booking system to smooth
traffic flows
•Incentivises cargo delivery and pick up
at off-peak times

Super CFO - Steve Gray

Ruakura Inland Port

Our finances
1Q191Q20Variance
Trade (Tonnes)6,829,4516,755,316(1.1%)
Logs (Tonnes)1,844,3571,748,895(5.2%)
Dairy (Tonnes)413,641406,550(1.7%
Containers (TEUs)295,480312,667+5.8%
Transhipped Containers (TEUs)84,93192,726+9.2%
Group Surplus After Tax$23.206M$21.738M(6.3%)
First Quarter’s Trading

THANK YOU